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Since the Department of Energy (DOE) was established in 1977, one of its missions has been to promote the nation's energy security through research, development, and demonstration of advanced technologies for meeting future energy demands and diversifying the nation's energy portfolio. As part of this mission, DOE's Office of Energy Efficiency and Renewable Energy conducts research, development, and demonstration activities in partnership with industry to advance a diverse supply of clean power technologies. The fiscal year 2008 budget for these activities was $1.7 billion. The Energy Policy Act of 2005, the first comprehensive energy legislation in more than a decade, includes provisions to address the nation's long-term energy challenges. Key goals of the act include diversifying the nation's energy supply by promoting alternative and renewable sources of energy and by investing in science and technology. Provisions in the act promote the use of solar and wind power, establish a loan-guarantee program to encourage private investment in new energy technologies, and authorize demonstration projects for producing ethanol from cellulosic sources such as forest residues, agricultural residues, and scrap wood. To provide DOE with more flexibility to enter into agreements with private-sector entities, section 1007 of the Energy Policy Act of 2005 gave the Secretary of Energy the ability to use "other transactions authority." This authority, similar to that previously authorized for the Departments of Defense and Homeland Security, allows an agency to enter into agreements "other than" standard contracts, grants, and cooperative agreements. Agreements under this authority would not be subject to the Federal Acquisition Regulation or certain other federal laws governing contracts. Therefore, the other transactions authority could provide for more flexible terms and conditions, thereby enhancing the federal government's ability to acquire cutting-edge science and technology by attracting contractors that had not typically pursued government contracts. DOE may use this authority to help bring new ideas and innovations to fruition, to attract nontraditional government contractors, and to advance the department's energy security mission. The Energy Policy Act of 2005 required DOE to issue proposed guidelines for the use of this authority by November 8, 2005 (no later than 90 days after enactment), and specified that the department could not use the authority until the final guidelines were published. DOE's authority to enter into these transactions terminates on September 30, 2010. The act further required that GAO report on the department's use of other transactions authority, including DOE's ability to attract nontraditional government contractors (defined as those who have not had a contract or other agreement with the federal government for at least 1 year before the proposed contract). This report and our previous discussions and communications with your staff fulfill that directive, addressing (1) the steps DOE has taken to implement other transactions authority, including the safeguards established, and (2) the extent to which using this authority has enabled DOE to attract nontraditional government contractors.

As required by the Energy Policy Act of 2005, DOE developed and issued final regulations to implement other transactions authority before using the authority. Furthermore, DOE issued supplemental guidance and developed and presented training on how to use the other transactions authority to DOE legal, procurement, and program office officials. DOE decided to implement other transactions authority by using a special type of financial assistance instrument, called technology investment agreements. Technology investment agreements can be negotiated to include provisions that would encourage companies with promising new ideas to do business with the federal government. In both its regulations and supplemental guidance, DOE stressed that other transactions authority was to be used only if existing mechanisms, such as contracts or financial assistance, were not feasible or appropriate. Finally, DOE developed a training course on how to use this new type of agreement and presented the course at headquarters and field locations where technology investment agreements were most likely to be used. Overall, we believe that the controls DOE put into place over the use of its other transactions authority appear to be adequate, assuming that DOE continues to effectively implement the safeguards and to incorporate lessons learned as the department negotiates future agreements. DOE's use of other transactions authority to date has been limited: the department has negotiated one technology investment agreement to construct and operate a facility (an integrated biorefinery) that will convert wood wastes to ethanol. This project is part of DOE's efforts to demonstrate the commercial viability of producing ethanol from sources other than corn or similar food crops. The company that will be constructing this facility, Range Fuels, has not previously done work for the federal government and therefore meets the definition of a nontraditional government contractor. DOE's limited use of other transactions authority is consistent with the language in the Energy Policy Act of 2005 specifying that the authority is to be used only if contracts or other financial assistance mechanisms are not feasible or appropriate.